What is financial compensation?

The key to all forms of financial compensation involves payment, meaning the exchange of money for goods or services from one individual to another, or from an employer to an employee.

Another form of financial compensation is variable compensation, a form of payment from employers to employees based on employee performance. Normally, variable compensation is paid in addition to base compensation, like an annual or hourly wage.

Employers often use variable compensation to incentivize their employees to perform their jobs better or at a higher output level. This might apply to sales quotas, for instance. If a sales team can reach or exceed a sales goal, they might receive variable compensation through bonuses.

Variable compensation can come in several forms, including:

• Bonuses

• Commissions

• Incentives

• Stock options

• Profit-sharing plans

Within some of these areas, there are other variable compensation subsets.

For bonuses:

• Retention bonus

• Project-based bonus

• Referral bonus

• Sign-on bonus

For incentives:

• Management programs

• Profit-sharing programs

• Gainsharing programs

• Sales incentive programs

• Cash-based programs

• Equity-based programs